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27 April, 20:26

At the end of 2015, Apple had cash and short-term investments of $41.39billion, accounts receivable of $35.97billion, current assets of $ 89.75billion, and current liabilities of $ 80.59billion. a. What was Apple's current ratio? b. What was Apple's quick ratio? c. What was Apple's cash ratio? d. At the end of 2015, HPQ had a cash ratio of 0.38 , a quick ratio of 0.73 and a current ratio of 1.19. What can you say about the asset liquidity of Apple relative to HPQ?

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  1. 27 April, 21:03
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    (a) 1.11

    (b) 0.96

    (c) 0.51

    (d) Apple has more liquidity than HPQ.

    Explanation:

    (a) Current Ratio:

    Current ratio is a liquidity ratio, which measures the firm's ability to pay off its short-term obligations.

    Current Ratio = Current Assets : Current Liabilities

    Apple's current ratio:

    = $89.75 : $80.59

    = 1.11

    (b) Quick Ratio:

    Quick ratio is more stringent measure of liquidity. It does not include inventory and other assets that are not liquid.

    Quick ratio = (cash + marketable securities + receivables) : current liabilities

    Apple's quick ratio:

    = ($41.39 + $35.97) : $80.59

    = 0.96

    (c) Cash ratio

    Cash ratio is a conservative liquidity measure.

    Cash ratio = (cash + marketable securities) : current liabilities

    Apple's cash ratio:

    = $41.39 : $80.59

    = 0.51

    (d) Apple has more liquidity than HPQ.

    Though the current ratio of both the companies is the same, Apple has a higher quick ratio and cash ratio.

    The reason is because HPQ has a high amount of inventory. Apple is more equipped to meet its short-term obligations.
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